“We believe that very few programs will be forcibly closed by our standards,” Secretary of Education Arne Duncan said. “We want to give people a chance to reform. As a country, we need this sector to succeed. This is not about ‘gotcha.’ ”
I have nothing against for-profit higher education in principle so long as the students pay out of pocket (and I see no reason to treat nonprofit higher education differently). If they’re thriving on federally originated non-dischargeable student debt with no increase in quality, then the ‘gotcha’ is on taxpayers.
[D]epartment officials estimated that 5 percent of the 13,155 for-profit programs covered by the rules, and 1 percent of the 42,290 public and nonprofit programs, would lose their eligibility for student aid.
A program would lose eligibility for federal aid only if: fewer than 35 percent of its graduates are repaying principal on their student loans three years out, and, for the typical graduate, loan payments exceed 30 percent of discretionary income as well as 12 percent of total earnings.
So even if a program loses access, students can turn to private student loans, which have been completely covered by the ‘undue hardship’ exception to dischargeability since 2005. Then the Times heralds the revenge of lemon socialism.
[T]he for-profit education sector had many of the “same characteristics of what happened with subprime housing and securitization, namely that they can capture all the upside of increasing volume while shifting all of the downside to somewhere else, which is students and taxpayers.”
[National Economic Council director Gene Sperling] said the rules would “only decrease access to very weak programs that leave students with a crushing debt burden.”
In other words, don’t expect student debt to drop for a while.
At Innovations, Richard Vedder attacks the Gainful Employment rule for different reasons. Although I disagree that the Obama Administration is particularly anti-business (I think businesses are on a general hiring strike and don’t want to make money), I largely agree with Dr. Vedder’s point that tax status should be irrelevant to regulating aid. Indeed, I wouldn’t be able to blog on legal education if that were the case.
A case can be made to restrict federal financial aid. I would go even farther—an excellent case can be made to eliminate such aid. An even more compelling argument can be made that we should not be trying to expand higher education enrollments. But if the U.S. government is going to try to expand higher education and distribute aid to students, it should not base restriction of that aid on the ownership structure of the institution.
Dean Baker spanks the Post:
The Washington Post, which is part of a corporation whose primary income comes from for-profit colleges, told readers that new regulations on student loans would:
“effectively would shut down for-profit programs that repeatedly fail to show, through certain measures, that graduates are earning enough to pay down the loans taken out to attend those programs.”
[A]nyone who wants to would still be able to attend any for-profit college they chose. They could even borrow money to do so. They would just be unable to get a subsidized loan from the government for this purpose.
The problem is that private student loans aren’t dischargeable in bankruptcy and thus place far more risk on students than on lenders. I wonder if for-profit colleges will start auto-financing.